FINANCE & ECONOMIC DEVELOPMENT COMMITTEE MAY 4, :00 AM COUNCIL CHAMBERS

Transcription

1 FINANCE & ECONOMIC DEVELOPMENT COMMITTEE MAY 4, :00 AM COUNCIL CHAMBERS FIRST QUARTER FINANCIAL REPORT TROY WOO, FINANCE DIRECTOR (STAFF REPORT ATTACHED)

2 FINANCE & ECONOMIC DEVELOPMENT COMMITTEE May 4, 2016 SUBJECT: 2016 First Quarter Financial Report RECOMMENDATION: Review First Quarter Financial Report STAFF CONTACT: Scott Spence, City Manager Troy Woo, Finance Director ORIGINATED BY: Troy Woo, Finance Department ATTACHMENTS: 1. Revenue and Expenditure Reports for the Quarter Ending March 31, 2016 FISCAL NOTE: PRIOR REVIEW: None BACKGROUND: The 2016 first quarter financial report has been completed. The report focuses on the General Fund. The revenue and expenditure summaries are attached. GENERAL FUND EXPENDITURES As of March 31, 2016, total General Fund Expenditures were $9,335,483 or 21.9 percent of the adopted 2016 Budget. This is a total increase of $1,736,926 or 22.9 percent compared to the first quarter 2015 total expenditure level. Expenditures at March 31, 2015 were 19.4 percent of the total 2015 General Fund Budget. The majority of the 2016 increase is due to one-time transfers between funds to establish the City Council committed reserve fund for strategic investment. These transfers amounted to $1,060,000. After removing the impacts of the one-time transfers, the total first quarter 2016 expenditures increased $676,926 or 8.9 percent compared to the previous year. This variance was anticipated by the adopted 2016 Budget. Page 1 of 6

3 Although all first quarter expenditure categories show variances from the previous year, only the most significant variances are described below. The Police Department s first quarter expenditures declined $204,442 compared to last year. The Criminal Justice Fund experienced an increase of approximately the same amount. This is a result of the establishment of the City Council s 2015 adopted committed reserves. Salaries and benefits were adjusted between the funds to re-prioritize the Council adopted committed reserves to establish the Strategic Investment reserves. The impacts of the aforementioned one-time transfers to establish the City Council s Strategic Investment reserves can be seen in the first quarter expenditures for the Street and Capital Equipment Funds. Transfers of $500,000 and 560,000 were transferred from the Street Fund and Capital Equipment Fund, respectively. The Street Fund experienced increases due to timing differences relating to street lighting electricity ($158,759) and road marking supplies ($46,941) purchases. Additional details are provided in the attached expenditure summaries for the General Fund departments and other funds. GENERAL FUND REVENUES As of March 31, 2016, total General Fund Revenues were $9,344,471 or 22.0 percent of the adopted budget. Last year at this same time, revenues were 19.8 percent of budget. First quarter General Fund revenues increased $1,608,048 compared to the previous year. The aforementioned one-time transfers had a similar impact on revenues. Removing the impacts of the transfers, the General Fund revenue changes to a positive variance of $548,048 or 7.1 percent. The overall level of increase is consistent with the revenue budget projections. Through March 2016, $126,577 of property taxes has been collected. This is equal to 2.2 percent of the annual property tax budget. Low collection rates are expected during the first quarter. Property taxes are due twice per year on April 30 and October 31, so the majority of property taxes will be collected during these two times of the year sales tax receipts totaled $2,526,784 at the end of March. This is $244,713 or 10.7 percent higher than last year. Please note that sales tax receipts from two of the three months collected will be accrued back to 2015 when the sales activity actually took place. The following table shows the year-to-date top 20 sales tax sources. Page 2 of 6

4 Year-To-Date Last 12 This Year Last Year % Chg Months General Merchandise Stores $ 550,692 $ 532, $ 1,913,306 Food Services and Drinking Places 237, , ,646 Construction of Buildings 232, , ,128 Building Material and Garden Equipment and Supplies 137, , ,592 Sporting Goods, Hobby, Musical Instrument, and Books 162, , ,208 Specialty Trade Contractors 120, , ,250 Miscellaneous Store Retailers 109,343 96, ,031 Merchant Wholesalers, Durable Goods 76,036 69, ,946 Motor Vehicle and Parts Dealers 67,066 67, ,999 Electronics and Appliance Stores 90,990 90, ,455 Telecommunications 76,698 76, ,082 Food and Beverage Stores 56,976 60, ,981 Clothing and Clothing Accessories Stores 72,190 75, ,109 Repair and Maintenance 56,517 55, ,610 Professional, Scientific, and Technical Services 78,037 38, ,614 Administrative and Support Services 35,623 35, ,458 Nonstore Retailers 50,197 43, ,802 Furniture and Home Furnishings Stores 35,609 29, ,866 Health and Personal Care Stores 30,068 26, ,763 Rental and Leasing Services 29,388 24, ,594 $ 2,306,817 $ 2,073,210 $ 8,702,441 The top 20 sources provide 91.3 percent of all sales tax. The largest sales tax category, General Merchandise Stores, is experiencing a year-to-date 3.5 percent increase compared to The categories related to construction and housing continue to report positive results. This is consistent with strong single-family residential building permit activity and the North Thurston School District voter approved bond capital improvement program. Sales tax is the General Fund s largest source of revenue, so close monitoring of sales tax collections will continue. The General Fund business & occupation (B&O) tax first quarter revenues total $705,756 or 37.3 percent of budget estimate. B&O taxes increased $120,392 or 20.6 percent. B&O tax collections have the same basis as sales tax, so B&O taxes are likely to be following the same positive trend curve. In addition, the new business licensing partnership with the State is likely improving compliance with the City s B&O tax requirements. Utility tax collections for the first quarter were $185,202 higher than the previous year. Electricity and natural gas utility taxes experienced the most significant increases. Higher heating consumption during a normal winter following a very mild winter from the previous year is the main reason for the increase. Utility tax from electricity and natural gas increased $133,079 compared to the previous year. Telephone Utility Tax was $27,830 lower than the previous year. It is assumed that households continue to eliminate land line phones due to broader use of cellular phones, which reduces overall consumption. In addition, larger portions of cell Page 3 of 6

5 phone bills are related to data, which is exempt from local utility taxes. Utility tax collections from water, sewer, and stormwater increased 11.0 percent, which is consistent with adopted rate increases and a growing number of households. Non-business license (includes building, mechanical, plumbing, and electrical permits fees) revenues have been collected at 32.8 percent of the budget estimate. The majority of the permit categories are experiencing increases. Building permits are experiencing the largest increase. 79 single-family residential permits were issued as of March 31. This is higher than the 53 single-family residential permits issued during the first quarter of It was projected that 250 permits will be issued by year-end. Based on the first quarter issuances and historical activity, permits are on pace to exceed the projection. Building permit activity indicates future one-time sales tax increases, ongoing property, and utility tax increases. First quarter transfers-in increased $1,061,834. The increase is a result of the aforementioned one-time $1,060,000 Strategic Investment committed reserve transfers. UTILITY FUNDS First quarter 2016 operating expenditures for the City s utilities were within projections. The Water Utility Maintenance and Operations Fund expenditures were $96,271 or 5.7 percent higher in Professional services (internal engineering) were the most significant increase ($56,433). Wastewater Utility Maintenance and Operations Fund expenditures were $224,796 or 9.2 percent higher in The primary reason for the increase is higher transfers for LOTT revenue collection. The Stormwater Maintenance and Operations Fund expenditures were $6,125 or 1.3 percent higher than the previous year. Operating revenues for the utilities are meeting projections and consistent with approved rate increases and customer growth. Total water revenues were $259,518 higher than the first quarter of Through March 2016, water sales were $239,400 higher than the 2015 water sales. Wastewater total revenues were $263,247 higher than the previous year. Wastewater sales for the first quarter were $95,204 higher than 2015 and LOTT sales were $168,086 higher than 2015 for the same quarter. Stormwater revenues were $60,520 higher than Stormwater sales increased $67,797. CONCLUSION AND FORECAST After adopting three straight budgets that addressed significant deficits ( ), the 2016 Budget was adopted using reserves to balance a relatively small deficit of $153,586. The deficit relief experienced by the 2016 Budget can be attributed to significant growth to sales tax collections. The majority of the sales tax increase comes from construction activity single-family housing, commercial development, and the voter-approved North Thurston Public Schools property tax bond levy for capital projects. The majority of the Page 4 of 6

6 school district s capital improvement program projects, which are located within the Lacey city limits, will be completed during Without significant increases to retail sales or new construction projects to replace the school district s capital improvement program, the 2018 sales tax projection will decrease and significant budget deficits could return. Recognizing past annual deficits, long-term projected annual deficits, and the potential onetime nature of the construction sales tax increase, development of the City s first Six-Year Strategic Financial Plan is nearing completion. The plan is expected to provide the following benefits: Long-term outlook and perspective on the City s future financial condition. Information to make short-term budget decisions and the forward insight of the longterm impacts of current policy decisions. A financial model that allows for real time adjustments for flexibility and recognizes that budgets are dynamic documents. Guidance for budget actions and policy directives that will address the anticipated deficits. The Six-Year Strategic Financial Plan is scheduled to be completed in advance of the development of the 2017 Budget. With the exception of the stronger than anticipated sales tax collections due to construction activity, revenues and expenditures as a whole are occurring as projected. Although the sales tax collections are exceeding expectations, the increase does not warrant change of course from the adopted budget or long-range projections. More than half of the sales tax increase is generated from new construction and housing related categories. A significant portion of the new construction activity relates to the North Thurston Public Schools voterapproved bond capital improvement program projects. The elevated construction sales taxes are expected to continue through At this time, there are no indicators that the elevated level of construction will continue beyond 2017, so the conservative approach is to consider the increase one-time in nature. Each of the City s three labor contract terms includes 2017, so the City s commitments are known. The current contracts include maintenance of benefits and the cost of living adjustments (COLA) equal to 90 percent of the mid-year Seattle/Tacoma/Bremerton CPI-W with a minimum COLA of 2.0 percent and a maximum of 4.0 percent for American Federation of State, County and Municipal Employees (AFSCME) and a minimum COLA of 2.0 percent and maximum of 5.0 percent for the Lacey Police Management Association and Lacey Police Officers Guild. The medical benefit increases have been lower due to the Association of Washington Cities (AWC) Benefit Trust change to self-insurance on January 1, The long-term rate increase outlook is 7.0 percent compared to 10.0 percent previously. The cost of labor will continue to be the City s largest expenditure challenge. Labor is the City s most important asset, but it is the most expensive to maintain. Page 5 of 6

7 2016 is final year that the Street Overlay Program is funded through City Council committed reserves. Preservation of the City s street system is a top priority of the City Council, so the Lacey Transportation Benefit District was established by Ordinance No on January 28, A funding source has not been authorized, but is expected to be considered in time to avoid any significant delay to the overlay program. At the end of March, the State House of Representatives and Senate released their compromised operating budget. The Governor has signed the Supplemental Budget with some vetoes that benefitted Washington cities. The budget continued to consider the sweeping of city revenue and programs to help balance the State s budget. The City of Lacey will not be directly impacted this year. Highlights of the Washington cities impacts of the proposed budget compromise include the following: Funding for the Municipal Research and Services Center (MRSC) was almost reduced to devastating levels. Thankfully, the budget compromise did not sweep any additional funding from liquor revenues, which preserves the MRSC funding. The compromised budget does not increase the direct cost to cities for law enforcement cadet training. Early versions of the budget included increases. The proposal to merge the LEOFF 1 (Law Enforcement Officers and Fire Fighters) and TRS 1 (Teacher s Retirement System) retirement plans was not included in the compromise. LEOFF 1 if fully funded, while TRS 1 is not. Merging the two retirement plans has the potential to negatively impact the City s funding of LEOFF 1. The State will need to address the McCleary K-12 education funding mandate in the next biennial budget. It is estimated $3 to $5 billion will be needed to address the McCleary funding mandate. In addition, there is currently a $750 million operating deficit projected for the biennium. Local governments will be in danger of losing State-shared revenues. The State s budget process is likely to be long and the City s budget process could include a degree of uncertainty. The early 2017 Budget projections indicate a lower deficit similar to the adopted 2016 Budget sales taxes are projected to continue to include higher new construction collections and other revenue sources are expected to grow. However, the expenditures necessary to preserve the service levels Lacey s citizens have come to appreciate and expect are projected to grow as quickly as or more quickly than revenue projections. It is recommended that the 2017 Budget be approached with caution and continued conservatism. If the recent new construction trend is one-time in nature, 2018 could be financially challenging. Lacey s conservative budget approach has served its citizens well as illustrated with its ability to maintain service levels during the Great Recession and subsequent slow recovery. Page 6 of 6

8 City of Lacey Monthly Expenditure Summary March YTD YTD Expenditures: Amended 3/31/2015 YTD % of Amended 3/31/2016 YTD % of YTD General Fund Budget Actual Budget Budget Actual Budget Variance City Council 272,390 94, % 341, , % 46,934 Contracted Services 2,407, , % 2,627, , % (39,576) City Manager 519, , % 539, , % 11,514 Public Affairs/Human Resources 1,209, , % 1,261, , % 43,661 Finance 828, , % 848, , % 17,391 Legal & Judicial 583,649 95, % 594, , % 53,103 Common Facilities Overhead 1,652, , % 1,677, , % (34,591) Police 9,001,830 2,282, % 8,393,461 2,077, % (204,442) Public Works - Support SVC 84,229 19, % 78,437 17, % (1,846) Public Works - Engineering 2,829, , % 2,940, , % 71,846 Public Works - Parks Maint. 2,541, , % 2,590, , % 69,325 Public Works - Facilities Maint. 451,257 86, % 492,971 81, % (5,383) Planning & Community Dev. 2,186, , % 2,176, , % 40,707 Public Works - Water Resources 1,300, , % 1,335, , % 12,156 Parks & Recreation 2,360, , % 2,551, , % 35,731 Transfers Out 4,425, % 5,792, % - Total Current Expense Fund: 32,655,581 6,478, % $34,242,531 6,595, % 116, Criminal Justice Fund 730, , % 1,485, , % 212,444 Community Buildings Fund 530, , % 514, , % 10,983 Regional Athletic Complex 1,055, , % 1,059, , % 18,690 Street Fund 2,888, , % 3,504,352 1,359, % 790,129 Capital Equipment Fund 1,288,073 58, % 1,757, , % 588,150 Total General Fund Expenditures 39,148,585 7,598, % $42,564,080 9,335, % 1,736,926 Expenditures: Other Funds Arterial Street Fund 8,213, , % 9,237, , % (220,624) Lodging Tax 439,000 9, % 458,600 6, % (3,046) Community Block Grant % % - General Obligation Bond 2,060, % 2,026, % - LID Debt 1,398, % 1,047, % - Building Improvement 466, , % 323,379 22, % (92,197) Parks & Open Space 661,823 2, % 886, % (1,562) Regional Athletic Complex Capital 726,500 45, % 901,500 5, % (40,259) Water Utility 9,839,257 1,698, % 11,021,048 1,794, % 96,271 Wastewater Utility 13,769,434 2,448, % 14,540,495 2,673, % 224,796 Stormwater Utility 2,636, , % 3,245, , % 6,125 Reclaimed Water % % - Water Capital 9,686, , % 16,713, , % 44,362 Wastewater Capital 6,405, , % 11,030, , % (65,542) Stormwater Capital 2,027, , % 1,509, , % 7,750 Reclaimed Water Capital 3, % 3, % - Water Debt Service 6,155, % 4,022, % - Wastewater Debt Service 5,527, % 4,801, % - Stormwater Debt Service 1,751, % 1,751, % - Equipment Rental 2,538, , % 2,543, , % (329,661) Information Management 1,886, , % 1,905, , % (67,239) Total Expenditures 115,342,129 14,776, % $130,536,468 16,072, % 1,296,100

9 City of Lacey Monthly Revenue Summary March YTD YTD Revenues: Amended 3/31/2015 YTD % of Amended 3/31/2016 YTD % of YTD General Fund Budget YTD Actual Budget Budget YTD Actual Budget Variance Taxes: Property 5,422, , % 5,650, , % (11,437) Sales 7,811,185 2,282, % 8,373,364 2,526, % 244,713 Business & Occupation 1,873, , % 1,893, , % 120,392 Admissions 275,000 76, % 275,000 89, % 12,414 Utility - Electric 2,026, , % 2,054, , % 145,192 Utility - Natural Gas 771, , % 714, , % (12,113) Utility - Solid Waste 320,214 84, % 357, , % 27,969 Utility - Telephone 1,280, , % 1,278, , % (27,830) Utility - Water/Sewer/Storm 2,109, , % 2,263, , % 51,983 Excise - Forest/Leasehold 5, % % - Gambling 392, , % 400, , % (12,062) Total Taxes 22,287,144 4,869, % $23,261,771 5,408, % 539,221 Penalties & Interest % (20) Franchises 625, , % 650, , % 10,989 Licenses & Permits 936, , % 1,051, , % 24,618 Inter-Governmental: Criminal Justice Traffic Safety 5,000 2, % 5,000 - (2,400) Liquor Excise 86,561 22, % 203,869 48, % 26,423 Liquor Profits 397,456 99, % 396,232 99, % 459 Other State Entitlements ,451 4, % 4,363 Inter-Gov. Service Charges 236,110 26, % 234,768 4, % (22,316) Other Grants 76,500-69, Total Inter-Governmental 801, , % $926, , % 6,529 Service Charges: General Government 32,250 11, % 35,000 10, % (1,149) Security of Persons/Property 52,500 3, % 23, % (2,542) Economic Environment/Plan Checking 318,000 76, % 344, , % 118,381 Culture and Recreation 870, , % 988, , % 9,186 Total Service Charges 1,272, , % $1,391, , % 123,876 Interfund Charges: Engineering Services 2,628, , % 2,638, , % 63,320 Park Maintenance 293,752 61, % 377,650 92, % 31,489 Water Resources 1,565, , % 1,601, , % 36,664 Other Interfund Charges 200, Total Interfund Charges 4,687, , % $4,618,118 1,085, % 131,474 Violations 750, , % 525,000 87, % (103,316) Interest Earnings 80,000 11, % 55,000 24, % 12,546 Other Miscellaneous 113,450 7, % 43,550 10, % 2,962 Contributions 56,100 44, % 57,600 20, % (23,568) Financing - 15, (15,894) Transfers 434,647-1,501,338 1,061, % 1,061,834 Beginning Cash 610, , Total Current Expense Fund Revenues 32,655,581 6,963, % $34,242,531 8,734, % 1,771,251 Criminal Justice Fund 730, , % 1,485, , % 15,990 Community Buildings Fund 530,943 37, % 514,583 42, % 5,384 Regional Athletic Complex Fund 1,055, , % 1,059, , % (41) Street Fund 2,888, , % 3,504, , % 4,060 Capital Equipment Fund 1,288, , % 1,757,963 19, % (188,595) Total General Fund Revenues 39,148,585 7,736, % $42,564,080 9,344, % 1,608,048

10 2015 YTD YTD Revenues: Amended 3/31/2015 YTD % of Amended 3/31/2016 YTD % of YTD Other Funds Budget YTD Actual Budget Budget YTD Actual Budget Variance Arterial Street Fund 8,213, , % 9,237,323 1,113, % 666,387 Lodging Tax 439,000 82, % 458,600 89, % 6,331 Community Block Grant % % 4 General Obligation Bond 2,060,856 27, % 2,026,525 18, % (8,732) LID Debt 1,398,017 93, % 1,047,803 37, % (55,910) Building Improvement 466,157 1, % 323,379 3, % 1,856 Parks & Open Space 661,823 5, % 886,752 5, % 740 Regional Athletic Complex Capital 726, , % 901, , % 19,797 Water Utility 9,839,257 1,739, % 11,021,048 1,999, % 259,518 Wastewater Utility 13,769,434 3,446, % 14,540,495 3,709, % 263,247 Stormwater Utility 2,636, , % 3,245, , % 60,520 Reclaimed Water % % 16 Water Capital 9,686, , % 16,713, , % 93,982 Wastewater Capital 6,405, , % 11,030, , % 54,772 Stormwater Capital 2,027, % 1,509, % 57 Reclaimed Water Capital 3, % 3,500 1, % 868 Water Debt Service 6,155,431 1, % 4,022,965 1, % (103) Wastewater Debt Service 5,527,752-4,801, Stormwater Debt Service 1,751, % 1,751, % 3 Equipment Rental 2,538, , % 2,543, , % (9,656) Information Management 1,886, , % 1,905, , % 15,291 Total Revenues 115,342,129 16,704, % $130,536,468 19,681, % 2,977,037